Follow Us

EC upgraders may take big loan hit

Samantha Boh

Dec 11, 2013

Recent tweaks to the executive-condominium (EC) housing scheme will likely squeeze out home buyers who fall close to or below the monthly household income cap to buy public flats directly from the Housing Board.

This refers to those who have a household income below $10,000 and aspire to buy an EC instead of a flat from HDB.

One of the new tweaks caps the proportion of a borrower's gross monthly salary that can be used to repay an EC loan to 30 per cent.

On the measure, Mr Mohamed Ismail, chief executive of PropNex Realty, said that it could cut the purchasing power of upgraders by 50 per cent in some situations.

Mr Nicholas Mak, executive director at SLP International, said the move is "an attempt by the Government to discourage buyers from overstretching themselves".

With the implementation of the new mortgage-servicing ratio capped at 30 per cent, a household earning $8,000 can afford an EC worth up to $850,000, assuming it borrows up to 80 per cent of the EC's cost, he said.

With the prices of recent EC launches ranging between $800,000 and $850,000, buyers with a household income lower than $8,000 might find themselves cash-strapped, he added.

The Ministry of National Development announced on Monday the 30 per cent cap, as well as a resale levy that will be placed on second-timer applicants who purchase EC units directly from developers.

Cancellation fees for ECs were also cut from 20 per cent to 5 per cent of the purchase price.

Mr Ismail said the measures will also prompt developers to adjust their land-bid prices to take into account a potential buyer's purchasing ability.

He noted that implementing the new loan-repayment cap for ECs will make these units almost unreachable. So, developers might build smaller units to maintain affordability for buyers and this may compromise a unit's living space, he added.

However, DWG executive director Andy Choa said property developers should not be overly worried about the new moves, apart from making minor adjustments to marketing costs and the duration of marketing efforts.

"EC developers have healthy margins, so they can take a bit of heat," he said.

On Monday, showflats for two EC developments - Sea Horizon in Pasir Ris and Forestville in Woodlands - operated until 11.59pm, giving some home buyers the option to purchase a unit before the new repayment cap kicked in yesterday.